McClure v. DavisMcClure v. Davis
- Reporters:
- ,
- Before:
- McFarland
Lead Opinion
{¶ 1} Appellants, John and Mary Ann McClure, appeal the decision of the Hillsboro Municipal Court that granted summary judgment in favor of appellee, Kenneth Davis, thereby dismissing appellants’ complaint for money. On appeal, appellants contend that the trial court erred to their prejudice in denying their motion for summary judgment. Because we conclude that the trial court erred in applying the clear and unambiguous language of the contract, we sustain appellants’ sole assignment of error. We reverse the trial court’s grant of summary judgment in favor of appellee and remand this matter to the trial court for further findings consistent with this opinion.
{¶ 2} With regard to the facts leading up to this appeal, appellants defer to the trial court’s findings of fact set forth in its decision and entry below. In its entry granting summary judgment, filed on February 27, 2009, the trial court found as follows:
1. John H. McClure and Mary Ann McClure became holders of a promissory note for $45,000.00 executed on August 31, 1992 by Kenneth L. Davis and Susan Davis as Borrowers.
2. Plaintiffs included language for a “prepayment penalty.” Said provision stated:
“Borrowers agree that without prior consent they will not in any one calendar year pay an amount in excess of ten per cent of the principle [sic] balance of the promissory note and if they should pay an amount in excess of ten per cent of the remaining principal they agree to pay a penalty equal to sixteen per cent (16%) of the amount of principal that exceeds the ten per cent allowance.”
3. The promissory note was secured by a mortgage on real estate.
4. The basic payment schedule called for monthly payment of $262.50 per month. Said payment reflected an interest only payment of 7.0% per annum.
5. The note stated that the “principal shall mature and come due” on or before August 31, 2002.
6. On September 10, 2002 Kenneth L. Davis,
7. Defendant made interest only payments for fifteen years.
8. After the note matured in August 2007, Defendant payed [sic] $45,000.00.
9. Plaintiff demanded that “interest” of $6,480.00 be paid because defendant paid an amount in excess of ten percent (10%) of the principal balance in any one calendar year. Plaintiff claims this activates the pre-payment penalty in the promissory note. Ten percent of the $45,000.00 is $4500.00. The principal balance in excess of that is $40,500.00; 16% of that is $6,480.00.
10. Defendant disputed owing the $6480.00.
11. Plaintiffs agreed to release the mortgage on the property securing the note, but retained the right to litigate the issue of $6480.00.
II. Assignment of Error
I. The trial court erred to the prejudice of plaintiffs-appellants in denying their motion for summary judgment.
III. Legal Analysis
{¶ 3} In their sole assignment of error, appellants contend that the trial court erred to their prejudice in denying their motion for summary judgment. We initially note that a trial court’s denial of a motion for summary judgment does not constitute a final, appealable order. Darrow v. Zigan, Hocking App. Nos. 07CA25, 07AP25,
{¶ 4} When reviewing a trial court’s decision regarding a motion for summary judgment, appellate courts must conduct a de novo review. Doe v. Shaffer (2000),
{¶ 5} A trial court may grant a motion for summary judgment only when (1) the moving party demonstrates there is no genuine issue of material fact, (2) reasonable minds can come to only one conclusion, after the evidence is construed most strongly in the nonmoving party’s favor, and that conclusion is adverse to the opposing party, and (3) the moving party is entitled to judgment as a matter of law.
{¶ 6} “[T]he moving party bears the initial burden of demonstrating that there are no genuine issues of material fact concerning an essential element of the opponent’s case. To accomplish this, the movant must be able to point to evidentiary materials of the type listed in
{¶ 7} Here, both parties filed competing motions for summary judgment, stipulating that there were no factual issues in dispute and that the only issue before the court involved the interpretation of a clause that appears in the promissory note that states:
The Borrowers agree that without prior consent they will not in any one calendar year pay an amount in excess of ten per cent of the principle balance of the promissory note and if they should pay an amount in excess of ten percent of the remaining principal they agree to pay a penalty equal to sixteen per cent (16%) of the amount of principal that exceeds the ten per cent allowance.
{¶ 8} We interpret a contract to carry out the intent of the parties. Aultman Hosp. Assn. v. Community Mut. Ins. Co. (1989),
{¶ 9} Where a contract is clear and unambiguous, its interpretation is a matter of law, and summary judgment is appropriate. Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc. (1984),
{¶ 10} At the trial court level, appellants stressed in their summary-judgment motion that this provision was not a prepayment penalty but was a penalty provision designed to prevent them from having to pay capital gains taxes on amounts paid on the mortgage. Appellants argued that because the provision clearly imposes a penalty for amounts paid in excess of 10 percent of the principal in any given year, and because appellee admittedly paid a principal payment of $45,000 in calendar year 2007, appellee was obligated, according to the clear and unambiguous terms of the mortgage, to pay a penalty. Appellants further argued that the particular clause at issue was designed to permit appellee to make payments consisting of 10 percent of the loan amount each year, or $4,500, per year for ten years, thereby allowing appellant to pay the mortgage off on time and without incurring a penalty.
{¶ 11} In his competing motion for summary judgment, appellee argued that the note did not obligate him to pay anything but interest payments during the term of the mortgage. He further argued that because he paid the entire balance of $45,000 at the conclusion of the mortgage term, he did not owe a penalty. However, in making this argument, appellee seems to completely disregard the mortgage provision set forth above, which we believe, after a plain reading of the language, clearly does impose a penalty in connection with payments exceeding 10 percent of the remaining principal of the mortgage made in any calendar year.
{¶ 12} As set forth above, reading the original mortgage and the extension in their entirety and as a whole, appellee agreed to pay interest-only payments on a monthly basis during the term of the mortgage and the extension and further agreed that he would not, in any one calendar year, pay an amount in excess of 10 percent of the principal balance of the promissory note. By signing the original mortgage, appellee further agreed that if he should pay an amount in excess of 10 percent of the remaining principal in any one calendar year that he would be required to pay a penalty equal to 16 percent of the amount of principal that exceeds the 10 percent allowance.
{¶ 13} We conclude that the language setting forth these terms is clear and unambiguous. The trial court also found this clause in the mortgage to be clear and unambiguous; however, it applied the clear language incorrectly. Specifically, the trial court reasoned that the clause was a prepayment penalty and further reasoned that because the $45,000 payment was paid at the conclusion of the mortgage term, rather than early, the penalty was inapplicable. Thus, the trial
{¶ 14} Although we agree that the clause at issue is clear and unambiguous, we disagree with the trial court’s application of the clause to the facts sub judice. Rather, we conclude that the application of the clause does, in fact, result in appellee’s being required to pay the specified 16 percent penalty. Because appellee’s $45,000 payment made in 2007 clearly constituted a payment exceeding 10 per cent of the remaining principal
Judgment reversed and cause remanded.
Notes
. Appellee's wife was released from the note as a result of the parties' divorce.
. This is the only finding of fact by the trial court that appellants dispute on appeal, contending instead that the clause at issue was mutually agreed upon and was inserted into the mortgage by appellee's counsel. However, as a result of our ultimate determination that the clause at issue is clear and unambiguous, a determination of which party actually drafted the provision is unnecessary.
. We parenthetically note that based upon our reading of the clause at issue and by our calculations, appellee could not have paid off the note without incurring a penalty had he paid 10 percent of the remaining principal each year. The remaining principal amount each year would have decreased had any amount of the principal been paid. Thus, the 10 percent permitted payment would have decreased annually in conjunction with the decreasing remaining principal. Thus, assuming appellee paid 10 percent of the remaining principal each year during the term of the mortgage, the final payment would have exceeded the 10 percent allowed amount, resulting in application of the penalty provision.
Concurrence Opinion
concurring.
{¶ 15} When examining a contract, our primary purpose is to ascertain and give effect to the intent of the parties. Aultman Hosp. Assn. v. Community Mut. Ins. Co. (1989),
{¶ 16} Moreover, even if we could look beyond the clear and unambiguous language of the note, the record does not support a finding that this was a prepayment penalty clause. In his answer, Davis stated that “the purpose of the limitation was for the benefit of the Plaintiffs in order for them to reduce the amount of capital gains tax they would have to pay, and therefore was a limitation on the amount the Defendant could pay without penalty. The penalty set forth in the note was the amount the Plaintiffs believed would increase their capital gain[s] tax if the additional amount was paid on the principal.” And while Davis attempted to argue at the trial level that the McClures were not in fact financially harmed by his lump-sum payment, he presented no evidence to this effect. Moreover, the record contains no evidence that any risk that the parties anticipated of increased capital gains taxes due to high annual principal payments would dissipate after maturity. Thus, I agree with the principal opinion that the clause is an excess-payment clause rather than a prepayment penalty.
{¶ 17} However, because of the mutual mistake concerning the impossibility of performance of the contract without either obtaining consent or imposing a penalty, I would reform the contract. The obvious intent of the parties was to allow the borrower to annually pay up to 10 percent of the original principal balance without incurring a penalty and without causing the lenders to incur tax consequences. Thus, I would allow the first $4,500 of the payment to be made without penalty but would impose the penalty on the remaining balance of $40,500. Sixteen percent of this amount would be $6,480, which is the sum the lenders seek.
Dissenting Opinion
dissenting.
{¶ 18} I respectfully dissent.
{¶ 19} First, I believe that we may review the trial court’s denial of the McClures’ motion for summary judgment. I agree that the denial of a motion for summary judgment does not constitute a final, appealable order. However, in this case, we may review the denial of the McClures’ motion for summary judgment because it is an interlocutory order that has merged into the final judgment. See Hendrickson v. JGR Properties, Inc., Butler App. No. CA200802-056,
{¶ 20} Further, like the trial court, I believe that the clause at issue is a prepayment penalty clause. The contract states that “[t]he Borrowers agree that without prior consent they will not in any one calendar year pay an amount in excess of ten percent of the principle [sic] balance of the promissory note and if they should pay an amount in excess of ten per cent of the remaining principal they agree to pay a penalty equal to sixteen per cent (16%) of the amount of principal that exceeds the ten per cent allowance.” As a general rule, “[c]ommon words appearing in a written instrument will be given their ordinary meaning.” Skirvin v. Kidd,
(¶ 21} Here, under the McClures’ interpretation of the contract, Davis could not have completed the contract without incurring the 16 percent penalty at least, once. By definition, paying off the remaining principal would have required paying an amount in excess of 10 percent of the “principal balance.” Therefore, I believe that the McClures’ interpretation of the contract ignores the ordinary meaning of the word “penalty.” Davis could not have failed to fulfill a stipulation and thereby owe a penalty if the stipulation itself was impossible to fulfill.
{¶ 23} Further, I note that the McClures misstate the nature of the contract. In their appellate brief, the McClures write, “In fact, Appellee[] could have completely avoided any additional interest payments if he had paid ten percent each year from 1992-2002.” However, this statement does not accord with (1) the realities of the contract, as mentioned above, or (2) the McClures’ own actions in this case. Here, every payment on the principal would have decreased the principal balance. Thus, if Davis had paid 10 percent of the principal each year, he would have had approximately $15,690.53 left on the principal balance at the end of the original ten-year contract. In the present case, the McClures are seeking $6,480 in addition to Davis’s lump-sum payment of $45,000. Presumably, the McClures would have also sought the “penalty payment” in addition to a lump-sum payment of $15,690.53.
{¶ 24} For these reasons, I respectfully dissent and would affirm the judgment of the trial court.